What is a Balanced Scorecard?
Quality Glossary Definition: Balanced scorecard
A balanced scorecard (BSC) is defined as a management system that provides feedback on both internal business processes and external outcomes to continuously improve strategic performance and results. By bringing together measures around internal processes and external outcomes, a balanced scorecard supports continuous improvement at the level of strategic performance and results.
The balanced scorecard is a strategic management tool that views the organization from different perspectives, usually the following:
- Financial: The perspective of your shareholders
- Customer: What your customers experience and perceive
- Business process: The key processes you use to meet and exceed customer and shareholder requirements
- Learning and growth: How you foster ongoing change and continuous improvement
For each of these perspectives, the balanced scorecard prompts you to develop metrics, set performance targets and collect and analyze data. Your scorecard thus offers an efficient mechanism for reviewing strategy implementation based on measurement.
Read the Quality Progress Back to Basics article "A Tool for Anyone" for tips on creating balanced scorecards and to learn more about the above example.
The Benefits of a Balanced Scorecard
A balanced scorecard can help your organization both articulate and act upon your vision and strategy. Use it to:
- Facilitate effective and consistent communication because everyone speaks a shared language of metrics
- Drive focus around key requirements
- Facilitate reviews on a regular basis
- Ensure organizational alignment
The History of the Balanced Scorecard
Developed by Robert Kaplan and David Norton in the early 1990s, the balanced scorecard is more than a measurement system—in fact, it's a management system.
In their book The Balanced Scorecard: Translating Strategy Into Action, Kaplan and Norton describe the balanced scorecard as a necessary move away from over reliance on financial measures. According to Kaplan and Norton, because financial measures report on the past, they offer "an adequate story for industrial age companies" but not "information age companies." In the information age, organizations must "create future value through investment in customers, suppliers, employees, processes, technology, and innovation."
A strictly financial approach for managing organizations is not complete, as it doesn’t capture the landscape of the business and isn’t an indicator of the future. Evaluating organizational performance in a balanced manner on the parameters that influence your business becomes crucial for better management.
Balanced Scorecard Resources
Uniform Maker Sews Up Success With Scorecard (PDF) Read how a clothing manufacturer institutes a balanced scorecard to cut out inefficiencies and iron out problems at its facilities.
Driving Focus and Alignment With the Balanced Scorecard: Why Organizations Need a Balanced Scorecard (PDF) Learn how the scorecard connects strategies and measures to ensure that an organization attains its vision.
Bearing the Gift of Royal Performance Indicators (PDF) Enjoy and learn from this medieval tale of goals, objectives and strategic planning.